Small Business Series: Do's and Don'ts of Pricing a Solution
When it comes to creating value for your customers, pricing is an exercise that you must complete, evaluate, and repeat. This living model allows you to develop a strategy that positively impacts your solution(s) and your business all around. But the BEST way to price a solution isn’t something that’s set in stone, because every solution is different and value is subjective. However, there are some methods of practice to add to your utility belt.
Here are some do's and don'ts of pricing a product:
Do's:
Research your market: Conduct market research to understand your target audience's purchasing power, preferences, and willingness to pay.
Consider your costs: Calculate all the costs involved in producing, marketing, and distributing the product and factor them into your pricing decision.
Think about your margins: What do you want your target profit margin to be? What would be an acceptable margin of error?
Set a clear pricing strategy: Decide on a pricing strategy that aligns with your business goals, such as cost-plus pricing, value-based pricing, or competitive pricing.
Test different price points: Experiment with different price points to determine the optimal price that maximizes revenue and profit.
Communicate your value proposition: Clearly communicate the value of your product to customers to justify your pricing and differentiate yourself from competitors.
Don'ts:
Base your pricing solely on cost: Don't set your prices solely based on your costs without considering the market demand and competition.
Underprice your product: Don't price your product too low as customers may perceive it as low quality or inferior. Remember to gauge this amongst your other offerings. (Rule of three: price your offerings to push customers towards your preferred, middle-tiered, product.)
Overprice your product: Don't price your product too high as it may deter potential customers and reduce sales.
Ignore your competition: Don't ignore your competition when setting prices as they can influence customers' perceptions of your product's value and affect your sales.
Change prices frequently: Don't change prices frequently as it can create confusion and distrust among customers.
Forget the cost of cash float: From the beginning of a creation of a product or service to the end of receiving payment, your business has had to put up capital all along the way. Unfortunately, customers do not always pay on time. Therefore, don’t forget any of your costs to float the cash until a customer pays.
All in all, pricing should be a continuous process and tested with your customers and other stakeholders.
Need help growing your business, identifying opportunities, or getting over challenges? Reach out to speak with one of our certified Business Coaches.
